US-China Trade War Optimism Supports Pound to Dollar Rate
US dollar weakness helped the GBP vs USD rate to regain its footing at the start of the week, after the pound was tripped up by fresh fears of a no-deal Brexit over the Christmas period. Boris Johnson’s decision to make it illegal for the government to extend the Brexit transition period beyond 11 months, has cast a shadow over the UK’s future relationship with the EU.
The pair received some welcome support just in time for the new year celebrations, thanks to a reduction in trade tensions between the US and China, which triggered a dip in the dollar’s value. Renewed optimism that Donald Trump and Xi Jinping – Vice President of the People’s Republic of China – will meet this month to sign a phase one trade deal, dented demand for the safe-haven currency on Monday. This hopeful mood quickly turned to certitude the following day, when the US president announced that the two superpowers will sign the long-awaited deal on 15 January. Mr Trump then took to Twitter to inform the world that: “At a later date I will be going to Beijing where talks will begin on phase two!”
While the dollar was nursing a hangover as 2020 dawned, the pound had a spring in its step thanks to the prime minister’s sanguine new year message. The threat of a no-deal Brexit was tempered by Mr Johnson’s determination to deliver on the mandate of the people, after he told the nation that: “We can start a new chapter in the history of our country, in which we come together and move forward united, unleashing the enormous potential of the British people.”
GBP to USD Rate Ends Week on the Back Foot
This Brexit optimism was short-lived, however, as some strategists played down the currency’s prospects this year, ahead of what they believe will be a tortuous period of trade negotiations with the EU. The pound vs us dollar rate subsequently ended the week on a downward trend, sliding below the 1.31 level on Friday, from a high of 1.3279 on Tuesday. Soft UK data also weighed on the pair towards the end of the week. Most notably, a disappointing IHS Markit UK Manufacturing Purchasing Managers’ Index reading for December, which highlighted that the sector contracted at its fastest rate since 2012.
MPs return from their Christmas recess on Monday. Investors in the pound will be closely monitoring the headlines for some much-needed clarity about the prospect of a no-deal Brexit.
The first full week in the 2020 economic calendar is a busy one for the pound and dollar. Monday sees the release of the Markit Services PMI for both the UK and the US. Other influential figures include the US ISM Non-Manufacturing PMI on Tuesday, the UK BRC Like-For-Like Retail Sales on Thursday and US Nonfarm Payrolls, Average Hourly Earnings and Labor Force Participation Rate on Friday.
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